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Colorado health care exchange faces financial challenges

A sign placed out on the 16th Street Mall on March 24, 2014, beckons people to sign up for health insurance through the Affordable Care Act. (Kathryn Scott Osler, Denver Post file)

Connect for Health Colorado officials have touted the state's insurance exchange as frugal and having relatively low fees. But after spending at least $100 million in federal funding, the exchange is scrambling to figure out how to sustain itself beyond this year.

The exchange may find itself in a difficult position as it seeks solutions in coming months because some members of its own board, along with a vocal group of legislators, oppose fee increases. Its financial outlook may have worsened Friday when the state extended through 2015 health plans that aren't compliant with the Affordable Care Act, which is likely to lower enrollments through the exchange.

The exchange is a nonprofit public entity created by the state to help people find private insurance under the ACA and apply for government subsidies if they qualify. It has been funded mostly by federal grants but will rely more on fees in the future.

"We work very hard to keep spending as low as possible and do everything we can to bring in more people" into the exchange, said Connect for Health Colorado chief financial officer Cammie Blais.

Blais put together a financial model of various financial scenarios and how fees might increase to fund the exchange's budget.

The model suggests that the 1.4 percent administrative fee on policies purchased through the exchange could increase to as much as 3 percent by 2017. The federal government charges insurers 3.5 percent for policies sold on its exchange.

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The Colorado exchange can also levy up to a $1.80 a month broad assessment on all small-group, individual and self-insured, stop-loss policies bought outside the exchange. The model suggests that the fee, which will sunset after 2016, be $1.25 a month on 875,000 policies, for a total of just over $13 million.

In March, the board rejected a plan to raise the user fee to 1.7 percent, and last month legislators and board members balked at proposals to begin levying the assessment on policies and to explore selling other products such as vision coverage and life insurance.

"It's a tax," said Dr. Mike Fallon, a board member who sits on the exchange finance committee, about the broad assessment. "Anything we can do to eliminate that or keep it as low as possible is best."

Opposition to feeSen. Owen Hill, a Colorado Springs Republican who sits on the Senate finance and health and human services committees, also opposes any fee increases.

"It undermines private insurance, and every single person will pay this fee whether their policy is on the exchange or not," Hill said.

Any broad assessment would violate the Colorado Taxpayer's Bill of Rights because voters did not approve a tax increase for the exchange, Hill said. But Blais said that it's a fee the legislature approved for Cover Colorado — the state's last-resort health insurance — a program the state closed because insurers can no longer deny coverage based on pre-existing conditions.

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"My understanding is that a fee on carriers is different from a tax, which would be something paid by everyone," Blais said, adding the Cover Colorado fee was triple what is in her model.

Ben Price, executive director of the Colorado Association of Health Plans, said insurance companies supported the legislation that put in place the exchange fees, so they generally support the model.

"I don't think there's too much heartburn about it," he said. "There's a bit of a comfort level that they could have asked for more and didn't and it might be less. The benefits (of health insurance reform) outweigh the costs."

The fees outlined in the model are possible solutions, not concrete proposals, Blais said, because many factors that are difficult to predict
will impact the exchange budget.

Exchange revenues could be impacted by lower-than-projected enrollment, a large number of people dropping policies or choosing lower-cost policies, and fewer people getting compliant policies through the exchange as they're allowed to keep their policies.

Churn forecastThe model projects between a 13 percent and 20 percent churn, or people dropping policies, over the next three years. Blais said she is using federal estimates and has yet to obtain state figures from insurers.

Enrollment so far is meeting the exchange's mid-range projections.

The exchange is also considering moving into selling other types of insurance, like vision coverage and life, though its current technology is not set up for that.

Joining other Republicans, Hill said he would oppose any move to increase products sold by the exchange, saying he doesn't believe the exchange would be competent in selling other products.

Hill also is frustrated by the lack of hard numbers and that Democrats killed a detailed audit of the exchange in committee in March.

"From the beginning, there has been no real transparency, no real oversight," Hill said.

For the current 18-month budget ending Dec. 31, the exchange has already overspent its current-year budget on certain line items as much as 10 times over projections with eight months left in the budget year.

A marketing category was budgeted for about $32,000 through December, but the exchange has spent more than $310,000 as of March 31. Operations consulting was budgeted for about $528,000, but the exchange has spent $802,000.

Blais said rules surrounding the federal grants allow them to change budget line amounts as long as they remain in the same categories, and so far the exchange has not exceeded any category budget lines.

Overall, the current budget shows the exchange has spent about $47 million of the $116 million staff budgeted from the beginning of June 2013 through 2014. The budget shows that the exchange spent about $100 million in federal funding from when it was created in 2011 to December 2013.

With no significant additional federal money expected to come to the exchange, its budget is expected to drop from more than $70 million this year to $41 million in 2015 and then to $26 million in the last two years of the model.

This year, the 1.4 percent levy is expected to generate slightly less than $5.5 million, and increasing it to 2.5 percent to 3 percent will bring in up to $21.4 million, the model shows.

The exchange board expects to come up with proposals for fees and budgets in the coming months, Blais said.

Fallon said he hopes the exchange can live within its means and look for cuts instead of increasing fees — though he concedes his view is a minority on the board.

"If we can attract a large enough customer base, we might not have to increase revenue," he said.

This story was produced in partnership with Kaiser Health News, an editorially independent program of the Henry J. Kaiser Family Foundation, which is not affiliated with Kaiser Permanente.

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